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Refugee spending revs up German growth

AFP · 29 Nov 2015, 09:01

Published: 29 Nov 2015 09:01 GMT+01:00

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Data released this week showed solid growth for Europe's top economy in the third quarter, lifted by strong consumer spending and state expenditure for asylum seekers.
Analysts hailed the news as a welcome shift for a country that has often preached fiscal rectitude at the expense of stimulating the 19-country eurozone.
"The German economy has finally become what many international critics had been demanding for a long while: a domestically-driven economy," ING economist Carsten Brzeski said, "at least in the third quarter".
The figures for July to September showed that gross domestic product had expanded 0.3 percent, as household consumption rose 0.6 percent from the previous three months and state spending shot up 1.3 percent.
US rating agency Standard and Poor's said Wednesday that European consumers were finally loosening their purse strings, most pointedly in powerhouse Germany, and allowing a nascent eurozone recovery to gather steam.
It was not the first time that the German economy, traditionally reliant on exports, looked more to its own shoppers to buoy growth. Last year saw a similar trend, propelled by a robust labour market.
However the effect has been bolstered this year by the government outlays to process, feed and house more than 800,000 people fleeing war and poverty.
The expenditure will amount to around 10 billion euros ($10.6 billion) for 2015 and 2016, Economy Minister Sigmar Gabriel said Thursday.
Economist Stefan Kipar at Bayern LB bank noted that "this extra spending is like a small and unexpected stimulus programme".
And Armin Laschet, a leading member of the ruling conservative Christian Democrats, called it "the biggest pro-growth programme in years".
This is just what the International Monetary Fund, the European Commission and eurozone partners had long been clamouring for: Germany pouring its large trade and budgetary surpluses into investments that would benefit the wider euro area.
Despite the presence of the Social Democrats in the left-right "grand coalition" government, who managed to push through 15 billion euros in new spending on infrastructure to 2018, Chancellor Angela Merkel's determination
to balance the federal budget has blocked any broader coordinated stimulus drive.
Recent developments have not softened calls in Brussels for action. The European Commission took Germany to task in early 2014 for a huge current account surplus that it said was a source of economic imbalance in Europe.
On Thursday, it reiterated in a report that Germany's "very large and increasing external surplus and strong reliance on external demand expose growth risks and underline the need for continued rebalancing towards domestic sources".
Nevertheless, said Philippe Waechter of Natixis investment bank, it is certainly clear that "Germany is starting to play this role (of a driver of growth) to help all the others in Europe".
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However he noted that the public spending for refugees "were largely short-term outlays -- they are not the investments, particularly in infrastructure, that everyone has been expecting".
"That, however, could come later," Waechter said. Brzeski said Germany's policymakers were certainly not off the hook.
"To cope with the ongoing and new challenges, the economy will need a more sustainable investment boost," he said.
"Just banking on the current strength of domestic consumption could be a dangerous strategy."
The warnings, however could continue to fall on deaf ears in Berlin. A third consecutive balanced budget, as foreseen for 2016, "is not something we should sacrifice," Merkel told parliament Wednesday.

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